Published Decision: When Has a Neighbor Waived His Right to First Refusal?

Mizrahi v. Ben-David(an anonymous decision posted today on the Beth Din’s website) involves a dispute over a neighbor’s right to purchase an abutting property. This post provides an overview of the case, its halakhic background, and a summary of the dayanim’s analysis.

1. The Law of the Abutter

Jewish law provides an abutter with the right of first refusal when property is put up for sale. Under this principle, known as Dina de-Bar Metsra, the abutter has the right to match any third-party offer for the property and take title for himself.1 In addition to granting the abutter the ex-ante right to purchase the property when it goes up for sale, Jewish law also confers the abutter with the power to dispossess a third-party buyer ex postfacto, after the sale has been executed. In such a case, Jewish law treats the third-party buyer as a constructive trustee, an agent of the abutter; the abutter can remunerate the buyer for his costs and take title to the property.2

At the heart of Dina de-Bar Metsra is the idea that the abutter stands to gain a substantial benefit from owning adjacent properties while the cost to the would-be buyer is generally minimal (he can buy property elsewhere).3 Because of that, Jewish law assigns the right of first refusal to the abutter.

At the same time, Jewish law recognizes that an abutter has the power to explicitly waive his right to the abutting property.4 Moreover, by performing certain actions, such as encouraging the seller to proceed with the sale to the third-party buyer or by failing to object to the sale within a reasonable time frame, the abutter is deemed to have implicitly waived his right.5

2. Mizrahi v. Ben-David: the Facts

Mizrahi v. Ben-David is a case of neighbors, Mizrahi and Cohen, who owned adjacent properties for over 18 years. Mizrahi had repeatedly expressed his interest in buying Cohen’s property, but Cohen was never willing to sell.

In September of 2015, Mizrahi offered to pay $3.6 million for the property, but Cohen replied that he would not sell for less than $5 million. About a week later Cohen received an offer from Ben-David, a third-party buyer, for $5 million. Without revealing Ben-David’s identity, Cohen asked Mizrahi if he wanted to match the buyer’s offer and exercise his right under Dina de-Bar Metsra. Mizrahi declined, saying that he did not believe that the buyer offering $5 million was serious.

Sometime later, Mizrahi discovered that Ben-David was the
interested buyer. Mizrahi knew that Ben-David was a serious player in the real
estate market and realized that the $5 million offer was legitimate. Immediately
following that discovery, Mizrahi contacted Cohen and told him that he wanted
to match Ben-David’s offer. Cohen declined Mizrahi’s offer and informed him
that he was moving forward with the sale to Ben-David.

Mizrahi argues that he is entitled to exercise his right
under Dina de-Bar Metsra and purchase the property. Ben-David counters
that Mizrahi had waived his right when he told Cohen that he was not interested
in matching the $5 million offer, which bars him from asserting a later claim
under Dina de-Bar Metsra.

3. Waiver of Right

The dayanim consider several factors in determining
whether Mizrahi’s initial refusal to match the buyer’s price constitutes a
valid and binding waiver of right. Among these factors is whether a waiver is valid
without a kinyan (a formal act evidencing the party’s intent), whether a
party can waive a right that has not yet vested, whether the right was waived
to the buyer or to the seller, and whether the abutter can retract his waiver before
the sale has been executed.

The Talmud discusses a case where the abutter grants a third-party buyer permission to purchase the property.6

The Talmud concludes that this does not constitute a valid waiver of right so long as it was not accompanied by a formal kinyan. The underlying theory, according to Rashi, is that the abutter may have permitted the buyer to pursue the property only so as to expose the seller’s asking price.7 On the face of it, the Talmud’s ruling would suggest that Mizrahi’s waiver was not valid, as it was not accompanied by a formal kinyan.

Ramah, however, limits the Talmud’s ruling to a case where the abutter directed the buyer to purchase the property.8 In Mizrahi v. Ben-David the abutter (Mizrahi) directed the seller (Cohen) to proceed with the sale. Hagahot Ashri explains that Rashi’s theory of the abutter strategizing to expose the buyer’s asking price would not apply to discussions between the abutter and seller, for in such discussions the asking price would presumably be known (as in Mizrahi v. Ben-David).9 Shulhan Arukh rules in accordance with Ramah, which would imply that Mizrahi’s waiver was valid and that he can no longer assert his right under Dina de-Bar Metsra.10

Nevertheless, Rav Yosef Karo writes in his Shut Avkat Rokhel that even though theabutter’s waiver to the seller is valid, it does not fully vest until the sale is executed, and the abutter has the power to retract his waiver any time before then.11 Because Cohen and Ben-David did not yet execute the sale, Mizrahi would have the power to retract his waiver.

4. Seller’s Discretion

The dayanim also cite the Chemdat Shlomo, quoted in the Pitchei Teshuvah, who argues that when the abutter communicates his waiver to the seller, he effectively empowers the seller with the choice to enforce it.12 The waiver is not binding with respect to the third-party buyer, who is not entitled to enforce it. In Mizrahi v. Ben-David, Cohen expressed that he is indifferent between selling to Mizrahi and selling to Ben-David and that he is not committed to enforcing the waiver per se.

5. Choice of Law

It is also worth noting that the parties agreed on a choice of law clause, asking the dayanim to decide the case according to Sephardic Jewish law. Section 3(d) of the Beth Din of America’s Rules and Procedures provides that “In situations where the parties to a dispute explicitly adopt a ‘choice of law’ clause, either in the initial contract or in the arbitration agreement, the Beth Din will accept such a choice of law clause as providing the rules of decision governing the decision of the panel.” Choice of law clauses typically center on Jewish law versus the law of the jurisdiction. In Mizrahi v. Ben-David, however, the choice of law clause was applied internally to have the dispute governed by Sephardic rather than Ashkenazic Jewish law.

In any event, there does not appear to be a material
difference between Sephardic and Ashkenazic Jewish law with respect to the
facts of Mizrahi v. Ben-David.

Rashi Bava Metsi’a 108a s.v. ve-Asita. Likewise, the cost to the seller is usually zero, since the abutter has to match the would-be buyer’s offer. The seller is not required to incur a loss for the abutter’s gain. See Shulchan Aruch Choshen Mishpat 175:23 and 175:25.

B. Bava Metsi’a 108a; Shulchan Aruch Choshen Mishpat 175:29, 175:30.

Shulchan Aruch Choshen Mishpat 175:29; 175:30; 175:32.

B. Bava Metsi’a 108a.

Rashi Bava Metsi’a 108a s.v. Neharda’ei.

Tur Choshen Mishpat 175:47

Hagahot Ashri Bava Metsi’a 9:22.

Shulchan Aruch Choshen Mishpat 175:31.

Shut Avkat Rokhel 123. Rav Yosef Karo’s position in Shut Avkat Rokhel mirrors the position of Rabbenu Simcha (Mordekhai Bava Metsi’a 393) who holds that a waiver is invalid before the sale is executed, even if it was accompanied by a formal kinyan, because the right of the abutter does not vest until the sale is executed. According to Rabbenu Simcha, a waiver performed before the execution of the sale constitutes a mere kinyan devarim—a mere pledge, not a bona fide waiver—and is therefore invalid. Rav Yosef Karo, by contrast, holds that a waiver performed before the sale is valid but does not become binding until the sale has been executed.